The WACC of Hera SpA (HER.MI) is 6.1%.
| Range | Selected | |
| Cost of equity | 7.80% - 10.20% | 9.00% |
| Tax rate | 22.90% - 27.60% | 25.25% |
| Cost of debt | 4.00% - 4.60% | 4.30% |
| WACC | 5.5% - 6.8% | 6.1% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 0.5 | 0.59 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.80% | 10.20% |
| Tax rate | 22.90% | 27.60% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 4.00% | 4.60% |
| After-tax WACC | 5.5% | 6.8% |
| Selected WACC | 6.1% | |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for HER.MI:
cost_of_equity (9.00%) = risk_free_rate (3.95%) + equity_risk_premium (8.80%) * adjusted_beta (0.5) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.